MBM Resources- As Anticipated- Hold

By Maybank IB Research
25 May 2012

Maintain HOLD, TP at MYR2.83.  1Q12 results were on track. While
the auto sector is in recovery mode and MBM’s long-term strategic
plans look promising, we reckon most of these positives are priced in.
Our target price (ex-rights and bonus) pegs MBM at 7x FY13 EPS.  

Results within expectations. Reported 1Q12 net profit of MYR41m
(+58% QoQ, +7% YoY) contained a MYR5m gain from the sale of a
property under 78%-owned Oriental Metal Industries (OMI). Excluding
the one-off item, MBM’s core net profit of MYR36m (+39% QoQ, -6%
YoY) accounted for 23% of our full-year forecast, in line, considering
that 1Q12 is perceived to be the weakest quarter of the year. No
dividend was declared in 1Q12. MBM’s net gearing level was 19% in
Mar 2012 versus 16% in Dec 2012.

Hirotako, OMI and associates led growth.  Underlying QoQ profit
growth was driven largely by: (i) higher EBIT contributions from its auto
components division (+619%), as recently-acquired Hirotako’s results
were fully reflected from Jan 2012 and OMI reported an 11% sales
growth, and (ii) stronger associate profits (+12%). This was offset by
weaker EBIT contribution from the motor vehicle division (-18%),
impacted by a 15% drop in DMMS Perodua vehicle sales and higher
costs incurred for the building and upgrading works at its dealership
networks for VW and Hino.

We are keeping our forecasts unchanged.  MBM aims to re-jig its
earnings profile for a more balanced contribution from its core
businesses: manufacturing, motor trading and associates. Current
earnings are heavily reliant on 23%-owned  Perodua. MBM targets
pretax profit contributions from  associates, manufacturing and motor
trading to be at a more balanced 46:36:17 ratio in 2012 (2011: 67:9:24).

High planned capex will likely compromise dividend payments.
MBM plans to spend about MYR250m over 2011-15 (2.4x the capex
spent over 2006-10) with the bulk to be spent on: (i) its alloy-wheel
manufacturing plant (OMI: RM103m), and (ii) expansion of the 3S
network dealerships (i.e. VW; RM20m per network). We think the high
capex will likely compromise dividend payments. We forecast a lower
dividend payout of 10% of net profit for the next three years.


Share price: MYR2.83
Target price: MYR3.15

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